Firms and the Economics of Skilled Immigration

by Sari Pekkala Kerr, William R. Kerr & William F. Lincoln

Overview — Firms play a central role in the immigration of skilled workers to the United States. In this paper the authors review the progress that has been made so far on understanding the impacts of high skilled immigration from the perspective of the firm. They discuss why an understanding of the economics of the firm is important, and emphasize the important degree to which firms internalize substitutions and complementarities over different worker groups and occupations. They then review recent academic work about firms and skilled immigration, and describe important areas for future research from both microeconomic and macroeconomic perspectives, respectively. Overall, the authors make clear that firms play an essential and active role in the skilled immigration process. In fact, the structure of the most important skilled immigration program allows firms to first choose the worker that they want to hire before the immigration to the United States occurs. The same importance is true for universities and students, who often become the workers later hired by firms (e.g., Stephan and Levin 2001, Stephan 2010). Given this policy framework, it is particularly valuable to understand exactly how these institutions choose to be a part of the immigration process, the role of the immigrants in their sponsoring institutions, and how these initial conditions persist for future assimilation of the immigrant. Key concepts include:

  • The admission of high skilled workers is of deep importance to the United States, particularly with respect to fostering innovation.
  • Some of the key arguments made about skilled immigration cannot be analyzed without departing from traditional frameworks of labor markets and focusing instead more specifically on firms.
  • Firms, especially large and high-tech firms, have played a central role in this growth through their sponsorship of visas and effective selection of foreign workers.
  • The structure of one of the most important skilled immigration programs is designed to allow firms to select the workers that they want to hire, rather than having these employees selected by the U.S. government.
  • Economists have made tremendous strides over the past decade in identifying important unanswered questions about the impacts of skilled immigration. The development of greater data resources is the key next step for further progress on these important questions.

Author Abstract

Firms play a central role in the selection, sponsorship, and employment of skilled immigrants entering the United States for work through programs like the H-1B visa. This role has not been widely recognized in the literature, and the data to better understand it have only recently become available. This paper discusses the evidence that has been assembled to date in understanding the impact of high-skilled immigration from the perspective of the firm and the open areas that call for more research. Since much of the U.S. immigration process for skilled workers rests in the hands of employer firms, a stronger understanding of these implications is essential for future policy analysis, particularly for issues relating to fostering innovation.

Paper Information